Will child benefit changes lead to more tax avoidance?

Accountants have said that the government’s proposed changes to child benefit regulations are seriously flawed and could turn out to be an operational disaster.

As from the start of next year, households with one parent earning in excess of £50,000 will see their child benefit decreased. However, the ICAEW says this goes against the principle of individual taxation, as the government will be clawing back money from one person to pay another.

It is thought that over a million families will be affected by the change although HMRC is still trying to work out how to implement the new regulations.

Child benefit will be scaled down gradually for families where a parent earns over £50,000 and it will stop completely once that person’s income reaches £60,000.

If a parent is earning more than the upper threshold, they can stop claiming child benefit. However, if they choose not to do so, they will need to declare the benefit on their self-assessment income tax return. This could lead to half a million extra people having to complete self-assessment, which would lead to more work for the Revenue.

The ICAEW has also expressed concerns that tax confidentiality could be breached and service standards could decline. Taxpayers will then lose confidence in the tax system and HMRC and tax avoidance might increase.

Rachel Reeves, the shadow chief secretary to the Treasury, explained that George Osborne has ignored repeated warnings that the legislation was unworkable and unfair and now we’re left with a complete mess.